PRC Says OK To Capital One NSA Extension

The Postal Rate Commission recommended Aug. 25 that the U.S. Postal Service extend the duration of its three-year negotiated service agreement with Capital One Services Inc. for an additional year.

The USPS sought approval for the extension in a Federal Register notice Aug. 3. It must be approved by the USPS Board of Governors.

Under the NSA, Capital One gets discounts of 3 cents to 6 cents per piece during the first three years if its annual First Class bulk volume exceeds 1.2225 billion pieces. Discounts rise with volume.

In its filing, the PRC said the USPS estimates it will save $5.1 million in cost reductions during the additional year of the NSA.

The Capital One NSA was the first implemented by the USPS, taking effect in September 2003. It expires Sept. 1. Capital One, McLean, VA, is the postal service's fourth largest customer and its largest generator of First Class mail.

Capital One also converted its systems to use the USPS's Address Change Service, which gives electronic notification of forwarded mail and undeliverable pieces. As a result, Capital One no longer must open returned pieces and enter data manually to update bad addresses on its mailing list. The USPS no longer has to sort and return Capital One's undeliverable pieces of mail.

The deal has produced 150 million new First-Class Mail marketing pieces, according to the USPS. The agency has also said the extension benefits both parties: Capital One and the Postal Service both continue to derive value from the switch to electronic ACS as the preferred medium for handling undeliverable FCM. An extension of the current agreement for one year will also provide adequate opportunity for both parties to negotiate a new agreement.

In its original filing, the PRC established a $40.637 million limit on the maximum cumulative discounts available to Capital One over the duration of the agreement. The USPS reported that $4.7 million in discounts have been paid to Capital One during the first two years of the agreement, so the USPS does not anticipate any discounts being paid during the third year of the agreement.